The department's investigation determined Hinton officials violated state bidding laws, failed to establish contractors were paid so-called Davis-Bacon wage and had other infractions associated with using federal funds.

The town will face special conditions if it wants to see similar funding.

Don Hackler, a spokesman for the Commerce Department, said these types of inquiries by the state agency are rare.

The federal Community Development Block Grant funds were intended to help drill much-needed water wells to serve the small town in Caddo County, documents show.

Shortly before Hinton was awarded the grant, the town had lost two working wells due to unsafe levels of nitrates, according to the Oklahoma Department of Environmental Quality.

Hackler said the Commerce Department concluded its investigation into handling of the grant in July. He said no action was taken against the town, and the inquiry was closed as “Findings of Record.”

“Which means you broke the rules, but we really can't undo everything you did,” he said. “In the future, we will have special conditions on any awards to the town of Hinton ... we'll provide them additional technical assistance and monitor them extra closely, in the future, because of these issues.”

A June 21 letter from Ronnie Ward, director of community and economic development for the Association of South Central Oklahoma Governments, detailed the town's mishandling of the funds. It said the town violated state bidding laws and failed to provide wage documentation.

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Andrew Knittle has covered state water issues, tribal concerns and major criminal proceedings during his career as an Oklahoma journalist. He has won reporting awards from the state's Associated Press bureau and prides himself on finding a real...